Question

Natsu Company’s annual accounting period ends on October 31, 2017. The following information concerns the adjusting entries that need to be recorded as of that date. (Entries can draw from the following partial chart of accounts:
Cash; Rent Receivable; Office Supplies; Prepaid Insurance; Building; Accumulated Depreciation—Building; Salaries Payable; Unearned Rent; Rent Earned; Salaries Expense; Office Supplies Expense; Insurance Expense; Depreciation Expense—Building.)
a. The Office Supplies account started the fiscal year with a $600 balance. During the fiscal year, the company purchased supplies for 54,570, which was added to the Office Supplies account The supplies available at October 31, 2017, totaled $800.
b. An analysis of the company's insurance policies provided the following facts.
Months of
Policy Date of Purchase Coverage Cost
A April 1. 2016 24 $6.000
B April 1,2017 36 7.200
C August 1, 2017 12 1,320
The total premium for each policy was paid in full (for all months) at the purchase date, and the Prepaid Insurance account was debited for the full cost (Year-end adjusting entries for Prepaid Insurance were properly recorded in all prior fiscal years.)
c. The company has four employees, who earn a total of $1,000 for each workday. They are paid each Monday for their work in the five-day workweek ending on the previous Friday. Assume that October 31, 2017, is a Monday, and all four employees worked the first day of that week_ They will be paid salaries for five full days on Monday, November 7, 2017.
d. The company purchased a building on November 1, 2014, that cost $175,000 and is expected to have a $40,000 salvage value at the end of its predicted 25-year life. Annual depredation is $5,400.
e. Since the company does not occupy the entire building it owns, it rented space to a tenant at $1,000 per month, starting on September 1, 2017. The rent was paid on time on September 1, and the amount received was credited to the Rent Earned account However, the October rent has not been paid. The company has worked out an agreement with the tenant, who has promised to pay both October and November rent in full on November 15. The tenant has agreed not to fall behind again.
f. On September 1, the company rented space to another tenant for $725 per month. The tenant paid five months rent in advance on that date. The payment was recorded with a credit to the Uneamed Rent account. Required
1. Use the information to prepare adjusting entries as of Octobcr 31, 2017.
2 Prepare ournal entries to record the first subs - • uent cash transaction in November 2017 for its c and e.

Answer 1

Answer:

Natsu Company

1. Adjusting Journal Entries as of October 31:

a. Debit Supplies Expense $54,370

   Credit Supplies $54,370

To record supplies expense for the period.

b. Debit Insurance Expense $4,730

   Credit Prepaid Insurance $4,730

To record Insurance expense for the period.

c. Debit Wages Expense $5,000

  Credit Wages Payable $5,000

To record unpaid wages for the period.

d. Debit Depreciation Expense- Building $5,400

   Credit Accumulated Depreciation $5,400

To record depreciation expense for the year.

e. Debit Rent Receivable $1,000

   Credit Rent Revenue $1,000

To record rent revenue for the month.

f. Debit Unearned Rent $1,450

  Credit Rent Revenue $1,450

To record rent revenue for two months.

2. General Journal Entries for subsequent cash transactions in November 2017 for c and e:

c:

Date General Journal                     Debit      Credit

Nov. 7      Wages & Salaries Payable   $5,000

                Cash Account                                    $5,000

To record the payment of wages for the last week of the month ending October 31.

e:

Date General Journal    Debit      Credit

Nov. 15    Cash Account      $2,000

               Rent Revenue                     $1,000

               Rent Receivable                   1,000

To record the receipt of rent for October and November.

Explanation:

a) Data and Calculations:

1. Supplies

Balance              $600

Purchases       54,570

Supplies Exp.  54,370*

Balance             $800

2. Policy  Date of Purchase   Months of         Cost

                                              Coverage        

         A        April 1. 2016              24          $6,000

         B        April 1, 2017               36            7,200

         C        August 1, 2017           12             1,320

3. Insurance Expense for 2017:

Policy A Nov 2016 to October 2017  $3,000 ($6,000 *12/24)

Policy B April 2017 to October 2017 $1,400 ($7,200 * 7/36)

Policy C Aug. 1 2017 to October 2017 $330 ($1,320 * 3/12)

Total Insurance expense = $4,730